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Horse Racing (Funding)

Volume 536: debated on Tuesday 22 November 2011

Motion made, and Question proposed, That the sitting be now adjourned.—(Stephen Crabb.)

It is a pleasure to speak under your chairmanship, Mr Williams, and to see my hon. Friend the Under-Secretary of State for Culture, Olympics, Media and Sport, or the Minister for horse racing, as he is known in Newmarket, in his place.

I applied for this debate because the future funding of horse racing remains in a parlous condition. Although the Government have shown willingness to deal with the matter—no one doubts the Minister’s personal commitment—more action is needed.

Horse racing has, for centuries, been part of our national heritage. It has been interwoven in our national life from the time King Charles II took Nell Gwynne to Newmarket for a month in the spring and a month in the autumn and races were used to keep up the quality of bloodstock during times of peace. The current exhibition of early actresses at the National Portrait Gallery shows the beauty and other attractions of Nell Gwynne, so I understand the desire of King Charles II to spend two months on the plains of Suffolk to enjoy all the riches on offer.

The sport was about not just bloodstock but high entertainment, and so it is today. Racing is the second most watched sport after football in this country. It contributes more than £3 billion to our economy, and employs more than 100,000 people, 5,000 of them in and around racing in Newmarket. None the less, racing’s finances are in jeopardy. In 2010, the number of foals born in the UK fell by a sixth. The number of horses in training has been falling consistently over the past three years. The root of the issue is a breakdown in funding. The most important part of the funding for the industry is the levy—the money that betting pays to racing in return for the races on which people bet—and as we know, it has fallen dramatically.

The changes in the way that people bet and the move to more and more online gambling are at the heart of the matter. Racing has moved into a modern world and outstripped the outdated and outmoded outfit that has determined its funding—the levy system. Prize money has almost halved since 2009, dropping from around £65 million to £34 million this year. Prizes are in freefall compared with our nearest competitors. At Newmarket, a win in a middle-ranking race will net around £6,500; at Longchamp the equivalent is more than £21,000. Across the country, prize money has fallen by about a third over a couple of years.

Does my hon. Friend agree that for smaller race courses, such as Ripon in my constituency, the issue of prize money and its value is a major prohibitor to attracting good races, and for smaller race courses that is one of their biggest challenges?

If the problem is serious for Newmarket, it is even more serious for many smaller race courses, especially if the prize money hardly pays for the diesel to get the horse to the race. If a horse comes third or fourth, the owner’s costs are not even covered, and if an owner’s costs are not covered even when their horse wins, one of the great incentives for owning a horse is removed. Of course people own race horses for all sorts of reasons, not least the glamour of the winning enclosure and the thrill of their horse being the first to cross the line. None the less, it is important for an owner at least to have the dream that they may make money from their horse. People who own race horses are normally realistic about the fact that they may not get back their outlay, but they should at least have the hope that they can. The fall in prize money is central to a fall in the attractiveness of owning and breeding race horses.

The fall in prize money reflects the fall in the value of the levy itself—from £111 million in 2003 to £60 million in 2010. Will the Minister assure us that we can make the changes that are necessary to put the funding on a sustainable footing; that in the sale of the Tote there are commitments to racing that will be fulfilled; and that the money that used to come directly from the Tote and will now come through the deal agreed during its sale will still happen? The Tote, although smaller in cash terms, is another important part of the funding of racing.

Some progress has been made. It looks as though last year’s yield on the levy will come in at around £65 million, well below the target of £71.4 million, which in itself was too low. This year’s target is marginally higher, and it has been underpinned by a guarantee from three of the big bookmakers. The Levy Board will spend an extra £5 million in 2012, £4 million of which will go in prize money. Welcome as such a move is, it is merely damage limitation. A long-term solution to the levy needs to be put in place, not least because of the adversarial nature of the levy. Instead of the racing industry and bookmakers working together to provide a product that is great for the punter and good for racing, they have an adversarial relationship, which needs to be addressed.

I congratulate the hon. Gentleman on securing this important debate on the future of horse racing. Does he agree that the most important factor is a level playing field between onshore and offshore betting operators to fund the future of British horse racing?

I was just about to come to exactly that point, so the hon. Gentleman is prescient. There is consensus that the system is broken and needs to be reformed. We have no God-given right in Britain to some of the best racing in the world.

My hon. Friend mentioned the fact that the levy is going up, which must be welcomed by everybody. Does he not agree though that that is only half the story and that one of the other major costs for bookmakers is the media rights that they pay? After 2012, those will increase by £50 million a year, which is a huge windfall for the racing industry. It will even benefit race courses such as the one in the constituency of my hon. Friend the Member for Skipton and Ripon (Julian Smith).

I am not surprised that the amount being paid by bookies for picture rights is going up, not least because of the attractiveness of the sport and the amount of interest in racing. Of course the rise is good news but picture rights are only part of the story, because when a punter bets on a race the bet is based on the racing product that underpins it, so picture rights alone cannot be the answer to the question of how to fund horse racing.

I come now to what will be the core of my argument today and the core of the question that I will put to the Minister. During the last decade or so, what has been central to the fall in the value of the levy is the removal from British shores of almost all the big bookmakers. Of the 20 biggest bookies, only two are now domiciled in the UK. As I said earlier, that change reflects changes in technology that mean we can bet more online and over the phone. However, we must recognise the change and deal with it, if we are to put matters right.

The fact that bet365 and Coral are still onshore is great news, but we should not be in a position where we have to be grateful to bookies for staying onshore. The idea that we should thank people for paying the tax that they are due to pay is not one that we apply anywhere else in the tax system. In fact, everywhere else in the tax system we are pretty firm if people do not pay their tax. Although I am grateful that those two bookmakers—bet365 and Coral—have stayed onshore, many independent bookmakers cannot move offshore; they do not have the capacity to do so, as they are too small. Consequently there is not a level playing field even within the gambling industry to ensure that there can be fair competition in gambling.

The impact of that offshoring is felt across the board. There is a loss of millions in levy contributions and a loss to the taxpayer, estimated at £62 million a year, in lost betting duty. I would be very interested to find out whether the Minister has an updated estimate of the amount of tax that is lost in betting duty because of the number of offshore bookmakers.

I have been told to thank my hon. Friend on behalf of Uttoxeter race course, which is in my constituency, where his work on behalf of the racing industry has become legendary. People at Uttoxeter have asked me to pass on their personal thanks.

My hon. Friend raises the very important issue of betting going offshore. Obviously we live in a global world and the internet makes it incredibly difficult for us to regulate betting offshore. However, many offshore bookmakers still advertise in the UK; in magazines, on billboards and on the side of bus stops. Does he agree that one of the ways we could get them to understand the consequences of not being based in the UK is to regulate their advertising in those kinds of media?

I think that the consensus in the House on the need to make such reforms is demonstrated by the fact that all the interventions so far have anticipated the next page of my speech. I am very grateful to my hon. Friend for his intervention, because dealing with that offshore loophole is the first thing that we need to do if we are to sort out the problems of financing the racing industry.

When I talk to individual bookmaking companies that are offshore, each of them argues that they would really like to be onshore and that the only reason they are not onshore is that all their competitors are offshore. I have worked in a small business and I understand that argument. If somebody else has taken a chunk of tax and levy contributions out of their cost base, of course others will want to do the same.

I have a solution, which is to create a level playing field; let us have everybody onshore and paying their fair share of tax and levy contributions. The solution that the Minister put forward in July was a neat and quite simple one. Changing the designation of the location of a bet from where the bookie is based to where the punter is based would turn what at the moment is legitimate tax avoidance into tax evasion. Because of the internet, we might not necessarily catch 100% of bets by making that change, but we could capture the vast majority. All the major bookmakers who want to advertise or do other business in the UK will come onshore because they would not want to break the law by not paying tax and levy on the bets placed with them. Most bookmakers are good corporate citizens, so a change such as this would ensure that all the major players would come onshore. That would not only help with the funding of racing, on which bookmakers’ own business models depend, but with the lack of a level playing field, which is a scourge of independent and small bookmakers.

I understand the point that my hon. Friend is making. May I suggest a more conservative approach? I understand that he has great influence with the Chancellor. Has he thought about persuading the Chancellor to reduce the rate of tax on those offshore businesses, which will tempt them back onshore? As a keen economist, I am sure that my hon. Friend will appreciate that 5% of something is far better than 15% of nothing.

I do not believe in tempting people to pay tax; I believe in ensuring that people pay tax. I myself am not tempted to pay tax, but I have to pay tax. Indeed, the tax is taken out of my wages before I even see it. People across the country would not understand a system in which we merely tempt people to pay tax; we need to insist that people pay tax.

Nevertheless, my hon. Friend makes an important point. As he suggests, if all bookmakers came back onshore, the amount that went into the racing industry through tax and the levy would be substantially higher and it may well be that at the same time we could look at the rates of tax being applied to bookmakers. Indeed, there is a Treasury consultation on that very point at the moment. I am sure that he and others will make a contribution to that process, and no doubt the Chancellor will listen to all Conservative Back Benchers equally.

The argument that the Minister made in July in his written ministerial statement, and in response to a question that I put on the Floor of the House, concentrated on widening the regulatory net and ensuring that gambling regulations cover all people in the UK who make bets; it focused on the regulatory aspect. Of course I support the argument that the appropriate regulatory net should cover all people gambling in the UK and the principles behind that argument, but expanding the reach of regulation is not as urgent for the financing of the racing industry as closing the tax and levy loophole. I urge the Minister to look at the issue from the perspective of fair and appropriate funding of horse racing rather than the wider changes to the coverage of gambling regulation that he seeks. I am sure that people will support him in both those aims but one is urgent and the other is important, and the distinction between urgency and importance is one that I am sure he recognises every time he opens his ministerial red box.

I am very pleased that the Treasury is conducting a consultation, but I want to ask the Minister some questions about how we will make the progress that is necessary and how we will turn tax avoidance into tax evasion through legislation. A tax change and a financial change to the levy could be made through the Finance Bill, and Finance Bills happen regularly. If that means that we cannot make the wider regulatory changes that the Minister seeks, so be it. The urgent task is on the financial side, because it is only when we tackle the offshore problem that we can go on to make the broader changes in the levy that many people want to see; indeed, I think that there is cross-party consensus about the need for broader changes in the levy.

With bookies back onshore and paying their share, we can finally establish the long-term funding structure that is both sustainable and fair to everybody involved in racing, including bookmakers, and it could improve the relationship between racing and bookmakers.

My hon. Friend has used a key word, which is “sustainable”. As he rightly said, one can understand the business reason for bookmakers going offshore in the short term, but such a number of bookmakers going offshore is ensuring their own destruction and the destruction of the industry on which they survive, so this is bigger than paying tax onshore—it is about ensuring that the industry, and therefore bookmaking itself, continues.

Indeed. Bookmakers tend to value having racing on regularly so that there can be product in their shops—races on which people can bet. Around the country, having regular racing and a full fixture list is good not only for the paying punters who want to go, but for bookies, and it is important to ensure that that can be appropriately financed, because the number of fixtures cannot be increased without increased support. Ensuring that prize money per race returned to a reasonable level would provide the impetus for people to own the horses on which the rest of the industry depends. There is a chain of causation through the fixture list and the prize money, and ensuring that the appropriate levy is paid is critical.

I assure the hon. Gentleman that I am going to refer not to the next page of his speech, but to the first one. He mentioned the fall in the number of foals produced in the UK. The levy is not simply about betting in betting shops or prize money at race courses; it is about the British breeding industry and the support necessary to maintain it. I hope he will assure everybody in the Chamber that he is also supportive in that direction.

Absolutely. On that point and more broadly, I declare a very wide interest: I am heavily supported in Newmarket, including by people from the breeding fraternity, or sorority—there are an awful lot of extremely impressive men and women involved in breeding—but this is also about racing welfare, which is supported by the levy. There is a much broader point, and I am grateful to have the opportunity to put that on the record. This is about not only the flow from prize money into the activities of horsemen, but the direct payments from the levy system to breeding, welfare, veterinary research and other important associated aspects of the sport, and indeed ensuring that the regulation of racing is adequately funded to guarantee high-quality and well-regulated racing. I do not want to dwell on that point, but I am sure that those of us with an interest in debates on the matter have noticed it over the past couple of months.

If the Minister got his skates on, how quickly could the change happen? We have talked about Finance Bills, but what would his optimal timetable be for this tax change to happen?

The proposed change is relatively simple. It would require primary legislation, but take only a couple of clauses in a Bill. The legislation would be fairly simple because it would change the designation of where a bet was and everything else would flow from that. That is the foundation of unlocking all the other changes for which there is cross-party support.

I urge the Minister to act. It is rare for the Government to have in front of them a proposal that is popular, important, timely, simple, money-raising and necessary. Since the proposal has all those attributes—and indeed, as we have discovered today, cross-party support—I ask him to act with the greatest possible speed. He cares deeply about horse racing, the people of Newmarket care about horse racing, and the country cares about the future of horse racing, so let us make this change and put the finances of horse racing on the sustainable footing that they deserve.

Order. I want to start the winding-up speeches at 10.40 am, so I hope that Members will time their contributions appropriately.

I congratulate the hon. Member for West Suffolk (Matthew Hancock) on securing this important debate. I have Ayr race course in my constituency and, as the only Scottish Member here today, I think that I can confidently speak on behalf of all Scottish Members with race courses in their constituencies.

I want to start by emphasising to the Minister the significant role that Ayr race course has in the Ayrshire economy. It is important because of local jobs—we have heard about the many people employed throughout the UK in racing in its many forms—and in relation to tourism. Ayrshire is a very beautiful tourist area and the race course contributes greatly to encouraging people to come to the area. Ayr race course is also an innovative and enthusiastic local business, with a strong community focus. It is the leading race course in Scotland, with the Ayr gold cup and the Scottish grand national among its annual fixtures. The race course does not just sit back and wait for funding in the form of a levy or anything else; it has built a business and has greatly diversified over the past few years, outwith race days. For example, it holds popular Christmas parties every year, which are a profitable enterprise. I have watched with great pleasure as Ayr race course has changed from a run-down facility, lacking investment and vitality, to one of our most popular local attractions. That is a credit to the management and the work force, and I wish to put on record my thanks for everything they contribute to our local area. The race course is well supported by local people.

Having said all that, since I have been a Member of the House, I cannot remember a time when levy negotiations have been anything other than a problem. Every year, with monotonous predictability, we can look forward to protracted, unsatisfactory, adversarial negotiations that go to the brink and do not achieve a positive outcome. It has been blindingly obvious for some time that the levy mechanism does not work, is outdated and no longer fit for purpose. I must be frank: despite the best efforts of the then Minister, my hon. Friend the Member for Bradford South (Mr Sutcliffe), who took a very keen interest in this matter and always tried to be helpful, I feel that the previous Government could have done more. They should have grasped the nettle. From the debate so far, it seems that more progress is being made. I hope I am right in saying that and look forward to the Minister confirming it.

I can assure the House that the lack of progress was not due to lack of trying on the part of every Member with a race course in their constituency. We set up Friends of Scottish Racing as a cross-party group, and we try to use every opportunity to highlight areas of concern alongside the UK Parliament’s all-party group on horse racing. It has already been mentioned that the levy is not the only area of concern, but it is of central importance because it undoubtedly puts race courses at serious risk. The fact that funding has reduced so drastically is rendering the sport uneconomic. We are reaching crisis point and something urgently needs to be done. I do not wish to be over-dramatic, and I am very aware that the racing community would prefer a more collaborative approach, with partnership working, but the current system militates against that and it is imperative that a new funding mechanism is found.

As a Scottish MP, I also wish to emphasise the difficulties faced by those in the north in attracting owners prepared to incur the extra costs and travelling time of bringing horses and jockeys further afield. We have already talked about attracting business to race courses, but in Scotland we have a particular problem because of the geography, and it is undermining if prize money does not reflect that effort. As the hon. Member for West Suffolk said, if people’s costs are not covered, they do not feel that it is worth the effort.

Does the hon. Lady share my concern and that of my hon. Friend the Member for West Suffolk (Matthew Hancock) about the fact that the UK has now dropped to 38th in the world rankings for prize money, and that prize money has halved in two years? That is of major concern to the industry and it calls for urgent action.

I could not agree more; that is a major issue. Despite the wish to maintain a competitive prize regime for Scottish fixtures, to say nothing of our excellent facilities, the industry in Scotland cannot be sustained indefinitely in the face of massive cuts in income from the levy. The annual payment from betting to racing has fallen from an average of £106 million to £59 million in three years—a drop of almost 50%. One of the most important reasons for the fall in racing’s funding position, as Members have said, is the move offshore by bookmakers and betting exchanges. How can it be right for bookmakers to advertise and transact in the UK but not contribute to the levy or pay taxes? Of 19 listed bookmakers, only two are now onshore, as the hon. Member for West Suffolk said.

I am aware of the Minister’s July announcement in which he proposed to regulate remote gambling on a point-of-consumption basis. That would create a level playing field and it is long overdue. All operators based here or abroad would have to hold a Gambling Commission licence to transact with UK customers. I welcome that and any other idea that would deal with this urgent situation as the hon. Member for West Suffolk implored—as soon as possible.

Thank you for the opportunity to speak, Mr Williams. I congratulate my hon. Friend the Member for West Suffolk (Matthew Hancock), who represents Newmarket, on making an eloquent and persuasive case. Right now, racing—along with its partners, the bookmakers—reminds me of the eurozone: a once mighty beast, unable to lead, unfit to govern, almost ungovernable and slowly being starved of cash, with solutions that too many vested interests will not address or embrace for fear of criticism by their members.

I have many things to declare. I am a category B licence holder and the only jockey in the House of Commons. As hon. Members will see, I am now in the heavyweight division. I blame the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) for many things, but I am afraid that the election and the delights of the House of Commons have caused me to lose the racing weight that I enjoyed when I won races in 2009 at Corbridge in Hexham.

I must also declare a definite bookmaking background. At age 11, at school, I survived by running an illegal bookmaking operation, which well and truly persuaded me that the bookmaker will always be one step ahead of the punter. On Fridays, we used to receive five boiled sweets in a bag, which was the currency that we used to run our bookmaking operation. My headmaster tried to stop that illegal betting ring, which clearly paid no tax, but was prevented by the outcry among the punters—my fellow schoolchildren—and by the positive encouragement of my parents, who were pleased to see, although I was not necessarily concentrating on my studies, that at least I was not such a daydreamer that I could not make a bob or two. So I have worked as a bookmaker and understand the difficulties and delights of that noble profession.

I should also declare an interest as a former horse racing journalist. For three halcyon years, I was the racing correspondent for that august racing journal, the Limerick Weekly Echo. I managed to put one Limerick bookmaker out of business by predicting the first, second and third in the grand national of 1981, an accumulator that one would wish to get a hold of. I have worked in horse sales, bred racehorses and worked as a stable lad in various places up and down the country. Also, although I confess that I am not nearly as wealthy as my hon. Friend the Member for Shipley (Philip Davies), who has many racehorses, I am in a syndicate with a part share in pointers and a chaser.

Over the years, I have ridden at a multitude of race courses, from Cheltenham to Kempton, and have enjoyed their delights, but I have a particular affiliation with and love for the finest race course in the world, which, as we all know, is Hexham. If hon. Members have not visited it, I urge them to do so. The team behind Hexham, one of the last few privately owned race courses in the country, have racing and the general public’s interest very much at heart. The race course provides employment, tourism and sport, supports breeding, vets and feed companies and is an integral part of society in the north-east. I know that I speak for all Members with race courses in their communities. Each of us will tell the same tale of how integral it is to their community, and how it provides much more than simply a race course where punters can place bets.

As the only jockey in Parliament and someone acutely interested in the issue, I can declare that the future funding of racing is important. It is a harsh reality that the number of horses going through the ranks of racing will increasingly diminish. That is patently obvious from the numbers. Horses will also be taken abroad to be trained. Why would anybody stay in this country to train a horse, unless they were particularly in love with the sport?

My hon. Friend the Member for West Suffolk spoke eloquently of the disparity in prize money for flat racing. The winner of a steeplechase race in France would get a minimum of £5,000, but the winner of a novice hurdle race at one of the lesser tracks here will probably end up with £1,000 or £1,200. By the time they have paid for travel, entry and all the other bits and bobs, it is almost not worth going to the races from a financial point of view. That 5:1 disparity in funding and prize money will eventually seep down into the system, causing the demise of racing in this country. Let us not be in any doubt. In what other sport is this country a world leader? One could make a case for cricket or a few other things, but in reality, racing is clearly the No. 1 sport at which this country is the champion, and we should support it. I certainly believe that it is a cause worth fighting for.

As others have said—I think that this opinion is cross-party—the present situation is patently untenable. We must address how racing is funded. The Government’s levy solution is clearly not sustainable in the long term. I applaud the Government’s efforts, which I know follow the efforts of previous Ministers, to find a radical new solution to how the levy is funded. I regret to say that I have little faith in bookmakers to volunteer a better system in future. That simply will not happen. My hon. Friend the Member for Shipley seeks a discounted version of taxation in relation to offshore. That is a commercial advantage to which bookmakers would sign up gratefully, but it would be no solution whatever.

It is important to note that such companies’ profits are significant. Betfair made £26.6 million to April 2011. William Hill made £277 million to 29 December 2010, and its chief executive’s salary is £1.65 million, which I suspect would fund Hexham about eight times over. All the other organisations make substantial profits as well.

My hon. Friend should know that the fact that I have more horses in training than him is the reason why he is far richer than I am. He rattled off the figures, but will he acknowledge how much those businesses give to racing? Betfair, which has gone offshore, still gives £6.5 million of its £26 million every year in a voluntary levy to racing. If racing is so strapped for cash, is it not bizarre that the British Horseracing Authority is ignoring the advice of two eminent QCs that its customers should not pay a levy, and is spending money needlessly on a judicial review with William Hill? If the racing industry is strapped for cash, one would think that it would spend its money a bit more sensibly.

To misquote Christine Keeler, they would say that, wouldn’t they? The harsh reality is that Betfair is effectively trying to buy off the racing industry by making a donation that it does not have to make, in the hope that the matter will not be transferred back onshore. That is a strong assertion to make, but I suggest that there is ample evidence to support it.

It is also clear that bookmakers are seeing the writing on the wall. They are trying to diversify away from racing and into sports such as cricket and football. For example, on the subcontinent, in India, there is little betting on racing, because most of it is on cricket.

I urge the Minister to change the tax rules. If overseas operations wish to utilise British racing, they must pay more. I support entirely the idea that the punter based in this country is the source of the taxation.

I want to go one step further. If we do not have a solution and if we do not refinance racing, we will need to look at what to do then. If we do not resolve the issue and if the bookmakers and the Government do not address it properly, there will be only one solution. It is draconian, but it is the only alternative solution, and that is the nationalisation of bookmaking. That is the only way that we could approach the issue if bookmakers are no longer able or no longer willing, and the Government do not create a scheme, to fund it in this particular way. [Interruption.] My hon. Friend the Member for Shipley chunters from a sedentary position, although I accept that he never usually does that.

The point is that America may be the land of the free, but it has no competition in terms of state-sponsored bookmaking. Similarly, France, which is another competitive society, has a state-sponsored bookmaking system. That is also the way it is done in Australia and other places. Why is it that racing is funded so much better in those countries? Because everything that racing does goes back that way. I stress that I do not want to go down that route, but bookmakers and the Government need to understand that, if they do not sort this out, I regret to say that that will probably be the only remaining option.

I could say much more about how racing has been led and about the disaster of the whip debate and the way in which the British Horseracing Authority and Mr Roy have conducted themselves, but I have probably said enough.

It is a pleasure to serve under your chairmanship, Mr Williams. I add my congratulations to the hon. Member for West Suffolk (Matthew Hancock), not only on securing this debate, but on his continued interest in the issue, for all the reasons that he has given.

Everyone present agrees that racing is a fantastic product. We only have to consider last Saturday’s Betfair Chase, where Kauto Star won a fantastic victory. All racing fans enjoyed that event. I do not have a racecourse in my constituency, but Go Racing in Yorkshire is a fantastic body that does well not only by promoting racing, but by bringing new people to racing through tourism and so on. Racing has an impact on employment and the country’s national identity, which is vital and something that we should not lose. A person’s social background and what they want out of a horse-racing event do not matter—they can go to the biggest and the best courses or to their local tracks, and enjoy the experience.

Today’s debate is timely. I thank the Minister for his work in trying to keep the momentum going—that is something that I tried, but, unfortunately, I was unsuccessful—on where we need to be and on achieving some realism. The hon. Member for Hexham (Guy Opperman) is right—there are too many vested interests for the issue to be resolved. Much as it appeals to me as a Labour politician, his solution to nationalise the betting industry might not be the way forward, although I like where he is coming from and can think of other issues that he might like to talk about in terms of nationalisation. There are too many vested interests, which means that the debate centres on the argument between horse racing on one side and betting on the other, but the issue is too complex for it to be as simple as that.

I agree with the hon. Member for West Suffolk about what should happen with offshoring and think that the Minister’s solution is sensible. I wish him well on trying to resolve that with his colleagues in Government—I know how difficult that can be—and on the taxation issue.

I favour sports rights—I do not think that it is unknown that that is the route that I would follow. I think that sports betting rights are the way forward. The comparison with France is a good one—it has an 8% sports betting levy—and I think that sports rights will eventually be introduced, probably in three or four years’ time.

There has to be some more movement. I do not think that racing can sustain our 60 courses, or that the levy support helps that. Racing itself has tried, through Racing for Change and other initiatives, to deal with the issue by introducing a championship and examining what can be done on the grading of courses. That work needs to continue, because it is unlikely that we will be able to sustain the levels of prize money and investment. That does not mean that local courses cannot look for other means of support and investment—they should. The reality might hit some such courses. Towcester is a good example of what can be done by an individual course.

The issue of the levy needs to be resolved and the vested interests need to be sorted out. We also need to look at the betting industry. We have talked about the reliance of betting shops on the horse-racing product, but I believe that that now accounts for less than 30% of the takings, because people are betting on other sports such as football, rugby and cricket. The future of high street betting shops is an issue. The Minister will be aware of concerns surrounding the fixed-odds betting terminals—FOBTs—and what may or may not happen to them in the future. There has also been a move to online betting. I think that the structure and size of the betting industry will change, and that will affect racing. I feel for the independent bookmakers, because they get caught up in the problems. They have to do what the big boys do, and it costs them more, so their costs are ever increasing.

I believe that good faith has a part to play. Talking of which, I hope that the Minister will update us on the position of on-course pitch tenure. We entered into an agreement in good faith and progress has been made with some courses, but I hope that the matter is not forgotten and put to one side, because small independent bookmakers rely on those pitches and I think that we came to a compromise that should be accepted.

I think it was the hon. Member for Shipley (Philip Davies) who raised the issue of William Hill, Betfair and the Levy Board. The money being spent on that is an absolute waste, and the fact that the BHA has to cover the costs is an issue that needs to be resolved. It should not be going through the courts in the way that it is and the matter should be resolved. Betfair’s commitment to racing is well known. The levy may be voluntary, but it exists.

The Minister should continue with his work. It is good to see the co-chair of the all-party group on racing and bloodstock industries, the hon. Member for Tewkesbury (Mr Robertson), present. We as Members of Parliament can and will continue to help to put pressure on vested interests. The day will come when, if they do not sort this out themselves, it will be sorted out, but not in a way that people want. I congratulate the hon. Member for West Suffolk again on securing the debate. I am sure there will be other such debates and look forward to hearing the Minister’s response.

It is a pleasure to serve under your chairmanship, Mr Williams, and to follow the hon. Member for Bradford South (Mr Sutcliffe), who works so very hard to try to resolve what are extremely difficult issues. I congratulate my hon. Friend the Member for West Suffolk (Matthew Hancock) on introducing this important and timely debate, and thank him for many of the things that he said.

I want to declare two non-declarable interests. I am joint-chairman of the all-party group on racing and bloodstock industries, along with the hon. Member for Mansfield (Sir Alan Meale), whom I am pleased to see present. With respect to other Members, I also have the honour of representing what I consider the greatest race course in the world—Cheltenham race course, where each year we have the world-famous Cheltenham gold cup. That is one of the greatest, if not the greatest, steeplechases in the world. I am delighted that my hon. Friend the Minister is a holder of one of those gold cups. I know that it is not the tradition of Government to have people who know what they are doing in post, but he is a very welcome exception to that rule.

I can only really endorse a lot of what my hon. Friend the Member for West Suffolk and others have said. In this country, we have what is probably the greatest racing in the world. It is certainly up there with the best, if not the actual best. As the hon. Member for Bradford South said, we had the most fantastic spectacle at Haydock on Saturday, when Kauto Star won against all expectation, providing such excitement in the world of horse racing and in the world of sport. Last year, Tony McCoy—AP McCoy—won the BBC sports personality of the year because of his exploits, yet all that gets overshadowed by the constant wrangling about funding and the constant falling out over the levy—not just the level, but the details.

I agree with my hon. Friend the Member for West Suffolk, who said that that is one of the best reasons for getting rid of the levy. It is divisive. It pits bookmaker against people in racing, whatever racing means in that respect. The levy was finally decided at quarter to 12 on the night of Halloween, which made for an unedifying spectacle. This is a very outdated and impractical system. As has been said, it has also delivered falling revenue. As the hon. Member for Mansfield said, that is important in many respects, not just for prize money, although it is significant with regard to prize money. Prize money is not everything, but it does filter down and find its way to trainers, jockeys and stable staff. It is extremely important not just so the rich can get richer, to coin a phrase, but so that those who work at the bottom can continue to work in the sport. Therefore, it is important to find a better funding mechanism, if mechanism is the right word. I will come on to that.

The principal point made by my hon. Friend the Member for West Suffolk was about how overseas operators are avoiding paying the levy. I do not object to anything he said, but I have quite a bit of sympathy with the point made by my hon. Friend the Member for Shipley (Philip Davies). We have to analyse why people have gone abroad. It is not just because of the levy. To draw a brief analogy, I have the honour of chairing the Northern Ireland Affairs Committee and one recent proposal was for the Northern Ireland Assembly to have the right to set a corporation tax that would be attractive to companies and businesses, compared with corporation tax in the Republic of Ireland. The tax is 12.5% in the Republic and 26% in the UK—a bit of a no-brainer when thinking about where to put a factory or business. We should explore why companies have gone abroad in the first place and consider having the kind of tax regime that attracts them. That is not just about bookmakers; I could expand that argument to all sorts of other businesses, especially in the competitive world in which we live. I therefore hope that that point will be considered.

I have no objection to the proposals that my hon. Friend the Member for West Suffolk made to the Minister, nor indeed to the considerations that the Minister is making, but we ought to think about why businesses went abroad in the first place. The constant pursuit of the exchanges is not healthy for the sport, or indeed for bookmakers, at this point. If we are talking about a levy replacement, let us get on with replacing it. Let us not get on with trying to tinker with the existing levy arrangement. If we do that, all we will end up with is levy mark 2—a similar arrangement to the one we have now, but called something else. I want us to move on from that.

How do we find the future funding for horse racing? That will not be particularly easy. If it were easy, the problem would have been solved a long time ago. We have heard a lot about a commercial solution. In terms of name and concept, I am all in favour of that commercial solution, but I am a little concerned that some of the proposals are not a commercial solution at all, but a rerunning of the levy. We need to avoid that.

There has been a call for any arrangement that is designed and agreed to be underpinned or guaranteed. We have to be very careful over how we go about that. Are we talking about underpinning through legislation? If we are, we have not really moved on much from where we are now. Indeed, we could find ourselves up in the European Court in relation to state aid rules. My view on state aid is that we are an independent country with a Parliament here, and we should do as we will. I would not bow to—[Interruption.] I thought that my hon. Friend the Member for Shipley would agree with me on that point. However, we are where we are at the moment, although we may change those rules in the future, and we do not want to fall foul of state aid rules. Any solution that we reach must be compliant. If the Minister will allow me to say so, we were rather too obsessed with state aid rules when it came to changing the status of the Tote—we gave them far too much credibility—but there is an issue here, no question about that.

On the question whether a transfer should be underpinned by legislation, would it not be better in the long term to have it underpinned by contract—by agreement—based on, for instance, a racing right or sports betting right? That could be the basis of a commercial agreement. However, is it not important in the short term to solve the offshore problem, so that we have an appropriate basis from which to go forward to a truly sustainable position?

Just as many hon. Members anticipated my hon. Friend’s next statement, he has anticipated mine. The arrangement has to be consolidated and underpinned by the civil law, rather than by legislation. I entirely agree with him for a number of reasons, and the state aid issue is one. Another is that, if we are going commercial, we are going commercial—that is the way we should go. I understand his point. We have to bring offshore companies back onshore, but I would prefer to explore that through the way that I have described—perhaps by making it attractive for companies to do business in this country. We may need to go a little further than that, but it should certainly be explored.

On coming up with the commercial solution, I am not entirely convinced that the Government should decide the replacement for the levy. The Government have proposed three options, although I do not suppose that they are the only options that they would consider. However, there are other options that are perhaps not for the Government, but for racing and bookmakers, to put in place.

My hon. Friend the Member for Shipley talked about the increase in media rights. I understand that over the next year, from 2011-12 to 2012-13, they will increase by 26%. That could be considered different from the levy, but when an owner gets his cheque for £5,000 or £10,000, I do not think he is too concerned whether that has come from media rights, race courses, the levy or wherever; he is concerned about the size of that cheque. The whole cake is the important thing, not necessarily which particular segments have come from where.

I will not take up the Boundary Commission’s strange oversight in not including Cheltenham race course in the Cheltenham constituency this time. What does the hon. Gentleman think of the mechanism of having a requirement for all bookmakers, whether offshore or onshore, to hold a Gambling Commission licence in the UK? That Government proposal has merit, and I think the Jockey Club also supports it.

I am grateful to the Member for the Cheltenham constituency but not for the racecourse for his intervention. He makes a fair point that needs to be considered. The workings of the Gambling Commission are being looked at, which is a welcome step. That may be a way of tying people in, so that all bookmakers are caught up in the agreement that is eventually reached between racing and bookmakers. I hope that that could be explored.

On the commercial solution, I mentioned media rights. I also mentioned sponsorship, which is rarely discussed, although many bookmakers voluntarily put money into it—not only bookmakers, but many other companies. I am reliably informed by many in racing who are involved to trying to fund the sport that racing does not pursue sponsors and sponsorship as much, as often or as deeply as it could. That certainly needs exploring. It might not necessarily be part of a system or structure, but that money is available. Companies often sponsor more than just one sport: they might sponsor cricket and football and racing. That has to be further looked into.

I agree with much of what the hon. Gentleman has just said, but we still need somehow to extract a price guarantee for the product. I find it difficult to accept that trainers, owners and jockeys will participate in a venture that produces a race for the industry to consume and make money from. Even at the minor level, £1.5 million is bet off-course on every single race, yet we have a scenario, which was referred to earlier, in which the owners and trainers of the race horses do not get enough money, even after winning the race, to provide the diesel and cover the transport costs of getting to the race course. That has to change and we must be given some access to a price guarantee for such people to make it worth doing at all.

I agree with the co-chairman of the all-party group on that matter. My only point is that the system should be guaranteed commercially and not necessarily underpinned by legislation or by the Government. I agree entirely with his point—I simply do not know how people continue to fund owning racehorses. If they cover their training fee for one month, they have done extremely well. That cannot be done every time—an owner will not win a race each month to cover the training fees, and indeed, they would still be no better off. In this country, the official figure for costs recovered is about 23%, which cannot be sustainable.

My final point on a commercial solution is that race courses, as well as bookmakers, are a big player. I agree with a lot of what has been said by other hon. Members in that there are too many other, bit-part players involved. It might be more polite to say that too many middlemen are involved, which clouds the issue and causes too many problems. Race courses and bookmakers are probably the main players in finding a solution, and we must find that solution. Horse racing is an outstanding sport that gives much pleasure, enjoyment, exercise and discipline to many people each and every day. We must find a way forward to maintain the very high level that horse racing has achieved over many years.

I congratulate the hon. Member for West Suffolk (Matthew Hancock) on his continued pressure on the subject and on securing the debate today. He and other hon. Members who have spoken have anticipated every page of my speech, so my few remarks will be from the angle of representing Redcar race course in my constituency. I am delighted that Go Racing in Yorkshire still says that the course is in Yorkshire, despite the local government gyrations that keep giving my area different administrations.

For a course such as Redcar, the effect of the problem over the past few years has been quite dramatic and, to some extent, hidden. The subtle effect of lowering prize money is that fewer owners attend the races, while some races are getting a lower rating, which influences the view of top trainers. They have always been happy to send horses to Redcar—trainers such as Henry Cecil are regular visitors—in particular as it is one of the few courses in the country with a flat straight mile. The 2011 cards have seen a noticeable drop in the number of trainers coming from places such as Newmarket or even further south—a trainer from Arundel used to send horses regularly—partly because of the cost of transport but also the subtle effect of lower prize money, which means lower quality racing. That vicious circle affects many smaller courses.

Redcar race course sits right in the middle of the town, so any change would have far-reaching effects, way beyond racegoers. It is a key part of our cultural life; for example, a great charity event for Help for Heroes was held there this summer, and I was happy to be one of those presenting a prize. The effect of race courses on towns is far wider than just racing.

Is racing not one of those unique sporting occasions that brings people from isolated rural areas in contact with those in urban areas? All walks of life coalesce around that fantastic sport, which is unique in that respect.

Absolutely. I cannot beat my hon. Friend’s lyrical description, but in Redcar, the race course is particularly important because it brings people into the resort activities of Redcar as well as for racing, often on the same day. Race courses play a key cultural role.

We must also remember—a point that has not been made—that bookmakers are key tenants on our hard-pressed high streets. I recently visited a bookmaker’s in Redcar, along with a representative of the Association of British Bookmakers. Although the ABB likes to remind us that UK racing is a smaller slice of the cake these days, the manager of the shop confirmed that it is still the major source of footfall in the shop. People using casino machines, for example, will most likely have come through the door because of racing. That is also true for many of those putting a bet on football on a Saturday; they are in the shop because of racing, even though the bet will appear in the bookmaker’s turnover as a bet on football. We should not accept too many scare stories from bookmakers.

Does that not reiterate the need for a level playing field? Betting shops inevitably pay the levy because a shop cannot be moved offshore.

That is absolutely true. My hon. Friend made the point earlier that independent bookmakers do not have the option to move offshore and, typically, they operate from fixed premises.

I support everything that has been said so far, and I welcome the Minister’s statement of 14 July. The suggestion that operators, wherever based, wishing to transact with UK customers would have to pay for a licence makes sense. I congratulate my hon. Friend the Member for Tewkesbury (Mr Robertson) on his hard work on behalf of the racing industry, and I agree that we have to think a bit bigger. It is high time that the levy system was scrapped; the tinkering that he mentioned will not provide a long-term solution. Commercial negotiations over the sale of the product, and a more entrepreneurial attitude from the industry, could have dramatic effects. We have seen what happens in other sports such as football, cricket and even darts when proper negotiations take place.

There is also sponsorship. Newcastle United has just decided, controversially, to rename its ground from St James’s Park, but that will net something like £10 million a year. What opportunities do race courses have in that regard?

I represent the most beautiful race course in the world, in Beverley. Does the hon. Gentleman agree that we need Government action to provide a new settlement that will get us over the endless grief caused to the former Minister and, I am sure, to Ministers in this Government? We can get the framework right, giving certainty for the future. We would send out a cross-party message that there will be no further legislative interventions, and then ask the commercial partners—bookmakers and race courses—to sit down together and sort out the differences, rather than looking constantly to us to provide a solution for them.

I agree. I am not suggesting that the levy should be scrapped overnight, but we should have an eye to the future, beyond a system that will get us to the future.

I ask Members to think about the amounts of money that pour into sports such as football and Formula 1 from TV, and then think about how few hours those sports are shown on television compared with racing. Does racing even know what its product is worth? If people off the courses are generating £1.5 million every half an hour, what are the TV rights really worth?

I welcome the direction that the Minister is taking. I welcome the Tote deal, because it kept a large benefit for racing, although I reiterate the point made by my hon. Friend the Member for Hexham (Guy Opperman), which is that the most successful racing countries in the world typically do not have commercial bookmakers but a Tote-style system. I hope we never get there, but it is possibly a safety net.

It is vital to our communities that we reform the finances, because race courses play a crucial cultural, economic and environmental role. The Government must continue to set the framework for the industry.

Thank you for the opportunity to speak, Mr Williams. I am sorry that I was a little late. I shall keep my comments short.

I add my support for my hon. Friend the Member for West Suffolk (Matthew Hancock) and congratulate him on raising the issue of an important industry and a vital part of our heritage. When the Government and all of us are stretching every sinew to promote growth in the country, it seems criminally negligent to allow the decline of a great industry that we already have. On a personal note, as the proud son of a former grand national-winning jockey who had the privilege of riding for Her Majesty the Queen Mother, it is a chance to remind ourselves of the great heritage of this great sport. My point is about the importance of national hunt racing in the rural economy. Low prize money is a particularly acute problem, and the whole pyramid of small trainers, point-to-points, hunts, pony clubs, hauliers and feed suppliers in a constituency such as mine is essential to underpin our rural economy and rural communities.

I add my congratulations to the hon. Member for West Suffolk (Matthew Hancock) on securing the debate, and his tenacity in following the issue. I have read previous debates that he has taken part in. I do not know whether he is aware that we share an interest in the Middle Park stud. Back in the mid-19th century, William Blenkiron, who had made an enormous amount of money in a men’s outfitters in the City, bought a horse called Glance, and set up stables in London after he retired. That activity grew so much that Blenkiron moved to Middle Park—it was then in Kent, but is now in an inner London borough—where he set up the Middle Park stud, which became the biggest stud in the country, and a tourist attraction. People from all over Europe would go to see that magnificent place. It is now a council housing estate, and in the middle is a place called Newmarket Green. The stud moved to the hon. Gentleman’s constituency, so we share some history. I believe that the Middle Park stakes are still run at Newmarket.

I bow to the superior knowledge that has been displayed by all hon. Members who have spoken. I cannot claim to be steeped in the history of racing, or to be as involved as Members who have spoken with great knowledge of the subject. My experience comes from childhood memories of my dad reading Sporting Life and studying form at the kitchen table on Saturday mornings. He was a member of a number of syndicates, and was a lifelong advocate and supporter of most betting shops, not to put too fine a point on it. He frequently told me that a horse was a dead cert and that he had been following it for years. Most were last heard of at the starting line, and never seen again. He loved racing, and had a lifelong association with it. It was a real joy for him, and it is part of our heritage. It is an industry and a sport that we should all protect, because it is important and we would rue the day if it were damaged or lost.

The history of gambling and betting shops is synonymous with horse racing. Gambling started at the trackside, and moved into the high street. That is when the levy arose. Betting shops were no longer on-course, and because of the investment necessary for racing, breeding horses and the industry generally, it was recognised that they should contribute to sustaining the sport through the levy. There is agreement that the arrangement should continue into the future if we are to sustain the industry. I add my voice to those who have today urged the Government to legislate to enable the horse racing industry to negotiate a return for its intellectual property rights and the investment that it puts into horse racing to ensure that it is sustained in future.

Does the racing industry believe that it is sustainable, not just in horse racing but in sport generally, for it to make enormous sums of money from what is invested in the sport and the effort that goes into organising the sport? Additional costs are imposed on the sport to sustain its integrity because of the dangers that it is exposed to through illegal gambling activities. Is it sustainable for the betting industry to continue to make money from the sport without contributing to it, particularly to its grass roots in our communities that sustain it? As has been said, horse racing involves a great deal at community level, and it is such an important part of local communities that without investment trickling down to its grass roots, the whole edifice will be undermined. None of us wants that, and I am sure that no one in the betting industry wants it either.

The question today is whether the current situation, when so many people are moving away and contributing less, is sustainable in the long term, not just in horse racing, but in sport generally. Some of the scandals in sport generally have involved illegal gambling practices with inducements for people to become involved in activities that do not affect the outcome—a no-ball in cricket, the first yellow card or a throw-in in football. If larger sums of money can be made from such activities than from performing in the sport, its integrity will be undermined. It is not just a matter of saying that such practices have occurred in the unregulated areas of gambling, because that is not so. There have been examples even in the UK’s regulated gambling operations of quite severe and large-scale corrupt activities to try to fix the outcome of gambling. If we are to sustain the integrity of the gambling industry so that it is not undermined, and to continue to have faith in sport and its outcome, knowing that it is genuine competition, we must work together to sustain the integrity of both sport and gambling. That means that a fair return must be paid to sport, and we must ensure that we work together to achieve that outcome.

I have some questions for the Minister. I assume that he accepts the principle that those who make money from gambling should contribute to the sport, particularly horse racing, which is the subject of this debate. What conclusions has he come to? He said that he intends to legislate to create a level playing field between those who operate onshore and those who operate offshore. Can he tell us today when and how he intends to move forward on that? Does he agree with the British racing industry that payment should be based around betting, not just on viewing rights, and that there should be some relationship to the amount of money that is exchanged in gambling on horse racing so that there is a sustainable replacement for the levy? Does he intend to legislate in that vein?

The hon. Member for West Suffolk asked about the future of the Tote. Will the Minister say what arrangements will be made for the Tote to make a continuing contribution to racing? It was set up to contribute to the future of horse racing. My time is up, so I ask the Minister to respond to those few questions.

It is a pleasure to have you in the Chair looking after us today, Mr Williams. I want to thank and congratulate all hon. Members who have spoken in today’s debate. My hon. Friend the Member for West Suffolk (Matthew Hancock), who secured the debate, has been notable in his continuing support for the industry and also for his tenacity in following it.

I am greatly heartened by the relatively widespread cross-party position on many aspects surrounding the debate. That is important to note not just now but for the future, because the problem has been knocking around for 51 years—the levy is 51 years old this year—and has defeated many people across the House and in the gambling and horse racing industries. It is not a simple problem; it is a difficult issue. Many Members have remarked on the fact that there are entrenched interests and points of view, and honestly held and fervently delivered opinions on all sides. If the problem were simple, we would have solved it 30 years ago. However, nobody has managed it, so it is helpful and worth marking that there seems to be emerging consensus, although there are still many important points of detail to deal with.

I am not sure whether this is a declarable interest, but in the interests of transparency I mention that my wife is a non-executive director of the race course at Cheltenham, from where my hon. Friend the Member for Tewkesbury (Mr Robertson) comes. She also has a horse in training, although the prospect of its being involved in any meaningful prize money is more theoretical than actual at the moment. At least the declaration has been made.

Several colleagues have asked about the proceeds of the Tote, including my hon. Friend the Member for West Suffolk and the hon. Member for Eltham (Clive Efford). The Government made a promise during the process of selling the Tote that 50% of the net returns would go to racing, and we intend to honour that promise. We are currently in discussions with the racing industry, and my approach has been very simple. I am happy to provide those proceeds via whatever mechanism racing chooses, with the sole proviso that it will not fall foul of competition or state aid rules. Basically, we sat down with racing and said, “With those sole provisos, tell us how you want it done”, and we are getting close to a solution. I am pleased to report steady progress, but there are important details that need to be sorted out.

The hon. Member for Bradford South (Mr Sutcliffe) asked about progress on on-course bookmakers’ pitches. That is a knotty problem that has been ongoing since he was in the ministerial chair. I am happy to report that Arena and Northern race courses are making good progress. They are all but there in terms of signing agreements. Certainly, there have been handshakes on deals, and I welcome that progress. Jockey Club race courses are still in negotiation. Once the big three groups of race courses have agreed a structure, I suspect that the remaining independents, of which there are many, as the hon. Gentleman will appreciate, will follow. I urge Jockey Club race courses and on-course bookmakers to pursue that remaining piece of negotiation rapidly. Others have managed it already. If we can get them over the line, or if they can get themselves over the line, they will not have to worry about politicians interfering. If politicians come up with a deal, I suspect it will be less good than one the industries come up with themselves.

I was delighted about and thankful for the level of support voiced for the Government’s proposals to change the way that offshore bookmaking is dealt with. It is important to realise that for entirely understandable commercial reasons—entirely logical commercial decisions in many cases—because of a system that was set up with a set of commercial incentives, many bookmakers moved offshore over the course of the past five or 10 years. We aim to change the way those offshore bookmakers are regulated. Several colleagues have been kind enough to describe this as simple and elegant; we are switching the way offshore bookmakers are regulated so that anybody anywhere in the world who is selling gambling services to people based in Britain will have to hold a British Gambling Commission licence. That neatly enfranchises all those firms within the British regulatory net, which is important for consumer protection. In this country, we are used to a well regulated and responsible gambling industry that is by and large clean and tries to make sure that it delivers on its social responsibilities for the small and unfortunate minority of people who suffer from gambling addiction. That is not the case in many other countries.

We need to ensure that we remain well regulated and that we continue to have a responsible industry. A British punter who goes online and uses this or that gambling website does not necessarily know whether the website is regulated in the UK or abroad. In some foreign jurisdictions, there are good regulators, but not in others, I am afraid. It is essential that a British punter knows that no matter where the website may be hosted, it is still protected by British regulation, and therefore they have the legal protections that they would expect if they walked into a betting shop on a British high street. That is the starting point for our regulatory changes.

The changes may also have important knock-on implications for taxation. I will try not to tread on the Treasury’s toes, but some parallel announcements were made a few days after we announced our regulatory changes. They are also working their way through the system. The point I want to make to my hon. Friend the Member for West Suffolk and anybody else who has raised the point during the debate is that changing the way we treat offshore regulation is an essential first step to dealing with consumer protection and potentially to dealing with things such as the levy and possibly even taxation. However, that is not the whole answer. Clearly, we need to move on, having built that foundation, to create a new environment and a new type of successor to the levy.

We do not want the gambling industry to go the same way as the British shipping industry. The way to solve the problem is to reduce taxation so that the industry does not want go offshore in the first place.

As a low-tax and free-market Tory, my instincts are of course with my hon. Friend. We will have to wait for the Treasury’s announcement on such matters. It is important to remember that there is a distinction between betting duty and corporation tax. Just as Goldman Sachs has a headquarters based in America but a large operation here in the UK, so too the location of betting firms’ corporate headquarters may be in a different place from where their operations and the jobs are. That is an important distinction to remember.

Given the limited amount of time, I want briefly to update colleagues on the progress we are making in the ongoing discussions between the gambling and horse racing industries in our search to find a successor to the levy. I am afraid I will not be able to give a running commentary, because the conversations are detailed and difficult, with the entrenched positions that everyone here has already mentioned. However, I can report that I have been impressed so far by the willingness of all sides to engage constructively and actively, and with a degree of determination. We are only partway through the process. There is a great deal further to do.

I reassure my hon. Friend the Member for Tewkesbury that while we may have started with the three options that I laid out to get the conversation started, we are moving on from them. I am taking the approach that if the gambling and horse racing industries can come up with something that they are both willing to sign up to, which satisfies basic principles of fairness on each side, it is not up to politicians to second-guess or contradict what the two industries can agree. We want to come up with something that is both enforceable and sustainable, so that when a new contract comes to an end there is a series of incentives and potential downsides for both industries that force them back to the table. That would ensure that they need to negotiate a successor contract or agreement so that the arrangement does not just come to an end after five years. If we can arrange those kinds of incentives, we will have that long sought after arrangement where racing will become in the best possible sense of the word a normal sport that does not depend on politicians and does not require Ministers or anybody from the Department for Culture, Media and Sport, and where the phrase “Hello, I’m here from the Government, and I’m here to help” does not send a chill through the blood.